Another hit to the economy - an increase in unemployment rate

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As if the economy was already not struggling enough - with the gas prices sky rocketing and the stock market continuously taking a dip, the recent unemployment numbers punched another hole. The unemployment rate had increased to 5.5% in May from the previous 5%. According to the Labor Department, this marks the fifth month of a decline, with a loss of 49,000 additional jobs in May.

There were 8.55 million people who were unemployed in May and of those, 1.55 million had been unemployed for a period of 27 weeks or longer. Under the current regulations, federal unemployment benefits expire after 26 weeks of unemployment. However, that may change in the near future as a current bill that has been approved by the Senate and is awaiting a vote in the House would add an additional 13 weeks of cash assistance.

This news comes during the policy debate in Washington regarding supplementary Iraq war financing bill. The unemployment numbers also cooled the speculation that the Fed may try to start slowly increasing the interest rates in an attempt to control the rising gas and food prices as well as provide additional support to the already weak dollar. The next Fed meeting is scheduled for the end of June and there is already plenty of speculation for what the next move by Bernanke may be.

As the Fed continuously lowered interest rates for the past 6 months, there was speculation that the economy was stabilizing and the banks were past their worst mortgage woes. However, these labor statistics and other economic indicators paint a very different picture.

What first started as a mortgage crisis has managed to touch all aspects of the economy. As the homeowners were experiencing financial difficulties, they cut their spending - which in turn impacted the sales in the shopping malls, grocery stores, and in the general home improvement category. This decrease in sales forced many businesses to cut payrolls. The business categories that have been hit the hardest include construction, professional and business services, manufacturing, transportation and warehousing, and of course retail.

Although there does not seem to be a bright light in the near future, US is still not considered to be in a recession, at least in accordance with the recession definition. How much worse can this get before we officially hit “recession”?

Post written by Economy & News

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